The Importance of Location for Digital CIOs

University of Pennsylvania professor David R. Bell discusses how real worlds and virtual worlds influence and affect each other, and are increasingly merging together.

By Jack Rosenberger

In his groundbreaking book Location Is (Still) Everything: The Surprising Influence of the Real World on How We Search, Shop, and Sell in the Virtual One, David R. Bell, a marketing professor at the Wharton School of the University of Pennsylvania, writes eloquently about real worlds, virtual worlds, how they influence and affect each other, and are increasingly merging together.

One of the main theses in the book is "that the way we use the virtual world of the Internet—for commerce and for information—is dictated to a large extent by the physical world each of us resides in. This influence is pervasive, and sometimes counterintuitive, with implications for our lives in both worlds," according to Bell. "[If] you and I live under different physical circumstances and in different physical environments, we will use the virtual world very differently—even if we are very similar people in terms of our ages, incomes, education levels, and so on. We'll shop differently, search differently, and won't be equally attractive to sellers."

One example of how the physical world impacts the virtual world (and vice versa) involves Diapers.com, a seller of baby care products. Interestingly, Bell and a coauthor discovered that the consumer demand for Diapers.com goods was dramatically higher in physical locations in which there were fewer households with young children. Why? Because retail stores in these physical locations didn't cater to households with children as they were a small subset of the local market. But for these consumers, Diapers.com was a virtual godsend as it provided goods that were otherwise unavailable in their immediate area.

Bell was recently interviewed by CIO Insight Managing Editor Jack Rosenberger about Location Is (Still) Everything, his Gravity framework for understanding the ways that location affects both physical and virtual worlds, and how the behavior of Bell, a colorful New Zealander who divides his time between Philadelphia (which plays a prominent role in the book) and San Francisco, is influenced by the real and virtual worlds, often at the same time.

CIO Insight: What do CIOs need to know about how the real world influences the way we shop online?

Bell: First, CIOs need to be on board with the key principle that physical world location explains quite a bit about the virtual world behavior of shoppers and consumers. This is important because via the Internet most companies serve very large markets (e.g., the whole U.S.) and within these markets, where there are huge geographic variations in sales. Second, being able to relate sales differences by location to differences in customers’ physical circumstances can produce a lot of insights and "easy wins" for new ideas and growth. (In chapter five of the book I show that sales at Diapers.com were up to 50 percent higher in locations where customers had lousy offline options because they had “minority preferences,” i.e., not many of their neighbors had kids and so physical stores didn’t cater to them). Third, once CIOs are on board, they are no doubt going to be invaluable in the collection, dissemination and use of new data that describes the real world around us. This might even lead to entirely new businesses being developed.

CIO Insight: How is our motivation for using the Internet based on our physical location and circumstances? And why do you think these patterns might evolve?

Bell: First and foremost, our physical circumstances dictate the offline options (for shopping, for information and so on) that we face. The quality of those offline options then, in turn, affects our overall need for the Internet and the intensity with which we use it. For example, parents with young children living next to a 24-hour Duane Reade store in Manhattan may need Diapers.com less than a similar family in the Philadelphia suburbs does. Second, since we choose our physical circumstances to begin with (city vs. suburb, etc.), that choice often says a lot about our characteristics and overall consumption needs as well.

CIO Insight: In your book, you write about resistance, or existing obstacles that prevent people from obtaining what they want. Please explain how the real world often places obstacles in our way of getting what we want and how the internet often helps remove these obstacles.

Bell: The real world puts two key obstacles in our way and the Internet helps remove them. First, prior to the Internet, it was often a chore to get information about products and services before making a decision to consume them. An economist or academic might refer to this as a "search friction." If we wanted to purchase a new TV, we’d have to visit a store to check prices and availability, and then have to decide whether to continue searching by going to another shop to see if we could get a better deal. Similarly, we’d have to call airlines and hotels about prices, availability and performance, eat at restaurants to determine whether we liked them, etc. Now all of that information is available to us immediately via the Internet. So, we’re much more informed. Second, we were subject to "geographic friction" as well in the sense that we could only buy what our local markets offered us. If we lived in a small market, or our tastes were very different from those of our neighbors, then we couldn’t always get what we want. There’s a great story in Brad Stone’s book The Everything Storeabout the fact that the first customer of Amazon lived 50 miles from the nearest bookstore—hence his attraction to the Internet.